THE GOVERNMENT has published the broad fiscal and economic assumptions that underpin its four year plan to return the national finances to a sustainable trajectory. Some important blanks have been filled in ahead of the unveiling of the plan later this month.
The size of the budgetary adjustment to be made next year is at the upper end of what was anticipated, confirmed at €6 billion, and the scale of the adjustments to be sought in the three subsequent years is also disclosed. The split between spending and taxation in next year’s adjustment has been outlined seperately by the Minister for Finance but the devil will be in the detail. It must be acknowledged in the Government’s favour that despite its increasing fragility, it seems intent on biting the bullet.
The public is little the wiser as to how all this austerity will affect them. From that perspective yesterday’s announcement can best be seen as part of the ongoing process of softening up the electorate for a very tough budget. It has also robbed the Opposition parties of one more place to hide when it comes to trying to drum up opposition to the size and the timing of the proposed correction. They now have the economic rationale for the Government decision to embark on a plan that many informed observers, including the ESRI, fear may cut too rapidly and thus be counterproductive. Fine Gael and Labour must now show their hands when they speak up at this point. The public should not be deluded that the problem will go away with a change of government.
The real objective of the exercise yesterday was to convince the European Commission and prospective buyers of Irish debt that the Government is proceeding apace with getting its fiscal house in order. Uncertainty erodes confidence and Ireland’s ability to avoid having to turn to Europe and the IMF for assistance next year requires the ongoing reassurance of sceptical lenders ahead of a return to the debt market in the new year.
The best that can be said of yesterday in that regard is that it’s too early to draw any conclusion. The hope is that the pension funds and insurance companies that lend to Ireland will see the significant front loading of the plan as representing a credible route by which Ireland can repair its finances.
In that respect the outline given yesterday is in tune with the consensus that Ireland should cut deep and cut early. The details promised later this month will put further flesh on these bones but no substantial change in sentiment – as reflected in the price charged to Ireland for its borrowings – should really be expected this side of the Budget.
But, given the scale of the budget ahead on December 7th, the most severe in the history of this State, everyone will be hit in order to cut back by this magnitude of money. It is to be hoped that those with the broadest shoulders will carry the greater burden. Fairness and equity across the public and private sectors are paramount.